Aug. 2, 2014 SIGN IN | REGISTER

Biofuel Blending Rules Won't Raise Gas Prices | Commentary

Congress and the American people have been told a number of stories about the causes of rising prices for Renewable Identification Numbers — the credits oil refiners and importers use to demonstrate compliance with the renewable-fuel standard.

What’s really behind this year’s rapid rise in the price of RINs? And will their cost be passed to consumers at the pump?

A simple exercise in following the money shows that it’s the refiners’ own failure to adequately plan for compliance that caused the run-up in RIN prices. In spite of that, consumers will actually benefit from competition in the fuel market under the RFS.

Congress has heard a lot of commotion from the oil-refining lobby, who say the RFS is broken. It isn’t. The RIN market is working as Congress intended when it originally passed the RFS, allowing refiners, blenders and importers flexibility in meeting the requirements of the rule.

The truth of the matter is that some refiners have chosen not to blend biofuels and instead try to pay their way out of the RFS obligation. They then cry that they are being “taxed.” But while these refiners look only to comply with the letter of the law, other refiners have a better business model; they have invested in the future by blending high volumes of biofuel and are consequently generating revenue. They and consumers are profiting from their foresight.

A case study illustrates the issue. Monroe Energy purchased the Trainer refinery to produce jet fuel for its parent company Delta Airlines’ operations at nearby Philadelphia International Airport. Monroe then negotiated a multiyear contract with Phillips 66, the former owner of the refinery, to swap gasoline and diesel produced at Trainer for additional supplies of jet fuel at other airport hubs. Now, Monroe Energy — which does not blend biofuels — reports spending $50 million in the first six months of this year to buy RINs. But Phillips 66, which does blend biofuels, reports “improved marketing margins” based on profits from higher RIN values.

This year’s rapid rise in RIN prices began right after the compliance deadline for the 2012 RFS volumes, when various refiners recognized the inequality in their compliance strategies. In fact, University of Missouri researchers wondered as long ago as last December why RIN prices were so low. Members of Pennsylvania’s congressional delegation, who wrote to EPA Administrator Gina McCarthy in July, also correctly noted that RIN price volatility occurred because of uncertainty over the 2013 rule, which was delayed in part by the refining industry’s legal challenges to the 2012 rule. The uncertainty equally affects all participants in the program, renewable-fuel producers included.

The “blend wall” isn’t to blame. The blend wall is nothing more than a trade barrier established by market incumbents to block competition. In some areas of the country, retailers offer biofuel blends above 10 percent at a lower price to consumers. There are many potential ways to use additional volumes of biofuels in U.S. transportation to reduce our reliance on foreign oil and lower fuel prices.

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